By Coleman H.B. No. 1601 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to the registration and reporting by charitable 1-3 organizations. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS; 1-5 SECTION 1. Title 9, Property Code, is amended by adding 1-6 Chapter 124 to read as follows: 1-7 CHAPTER 124. REGISTRATION AND REPORTING BY 1-8 CHARITABLE ORGANIZATIONS. 1-9 Sec. 124.001. SCOPE OF ACT; SHORT TITLE. (a) Except as 1-10 provided by this chapter, this chapter applies to all charitable 1-11 organizations doing business in Texas. In addition to other acts 1-12 that may constitute doing business in Texas, the solicitation of 1-13 contributions from persons in Texas shall be considered to be doing 1-14 business in Texas, regardless of where the solicitation originates. 1-15 (b) This chapter may be cited as the Charities Registration 1-16 and Reporting Act. 1-17 (c) This chapter does not apply to organizations subject to 1-18 Article 9023b or Article 9023c, Revised Statutes. 1-19 Sec. 124.002. CONSTRUCTION AND APPLICATION. (a) This 1-20 chapter shall be applied to promote its underlying purposes, which 1-21 are to encourage contributions to legitimate charitable 1-22 organizations through public awareness and donor education, and to 1-23 prevent persons from posing as charitable organizations and from 2-1 using misleading fundraising practices, because such activities are 2-2 harmful to legitimate charitable organizations and to the citizens 2-3 of this state. 2-4 (b) This chapter may not be construed to unreasonably burden 2-5 legitimate charitable organizations. 2-6 Sec. 124.003. DEFINITIONS. In this chapter and for purposes 2-7 of this chapter only: 2-8 (a) "Charitable organization" means 2-9 (1) a person who is exempt or has applied for 2-10 exemption from federal income tax under Section 501(c)(3) of the 2-11 Internal Revenue Code of 1986; or 2-12 (2) a person who solicits contributions and is exempt 2-13 or has applied for exemption from federal income tax under Sections 2-14 501(c)(4) or 501(c)(10) of the Internal Revenue Code of 1986; or 2-15 (3) any other person who solicits contributions and is 2-16 or holds himself, herself or itself out to be established or 2-17 operating for a charitable purpose, except for commercial 2-18 conventurers and volunteers that have been authorized to solicit on 2-19 behalf of a charitable organization which has registered in 2-20 accordance with the provisions of this Act. 2-21 (b) "Charitable purpose" means (1) any purpose described in 2-22 Section 501(c)(3) of the Internal Revenue Code of 1986; or (2) the 2-23 provision of assistance to needy individuals. 2-24 (c) "Commercial Solicitor" means any person who is retained 2-25 by a charitable organization to solicit contributions, whether such 3-1 solicitation is done individually or through other persons under 3-2 the direction of the commercial solicitor. No fundraising counsel 3-3 shall be deemed to be a commercial solicitor. No bona fide 3-4 employee, officer, director or volunteer of a charitable 3-5 organization shall be deemed to be a commercial solicitor. No 3-6 person who advises another person to make a charitable contribution 3-7 shall be deemed, as the result of such advice, to be a commercial 3-8 solicitor. 3-9 (d) "Contribution" means the promise to give or gift of 3-10 money, credit, property, financial assistance, or other thing of 3-11 any kind or value, except for volunteer services. It does not 3-12 include bona fide fees, dues or assessments paid by members, 3-13 provided that membership is not conferred solely as consideration 3-14 for making a contribution in response to a solicitation. 3-15 (e) "Person" means an individual, partnership, corporation, 3-16 association, or other entity, however organized. 3-17 (f) "Solicit" and "solicitation" mean: 3-18 (1) The direct or indirect request for a contribution 3-19 on the plea or representation that the contribution, or any portion 3-20 thereof, will be used for a charitable purpose or to benefit a 3-21 charitable organization. A solicitation shall be deemed to have 3-22 taken place whether or not the person making the solicitation 3-23 receives any contribution. Without limiting the scope of the 3-24 foregoing, these works shall include the following method of 3-25 requesting contributions: 4-1 (A) any oral or written request; 4-2 (B) publicizing a request in newspapers, on the 4-3 radio or television, or by any telecommunications device or other 4-4 manner of transmitting information to the public; 4-5 (C) the distribution, circulation, posting or 4-6 publishing of any handbill, written advertisement or other 4-7 publications; 4-8 (D) offering for sale any advertisement, book, 4-9 card, coupon, ticket, membership, merchandise, subscription, 4-10 flower, candy or other tangible item if any appeal is made for any 4-11 charitable organization or charitable purpose, or if the name of 4-12 any charitable organization is used or referred to in the appeal as 4-13 an inducement or reason for making the sale, or where any statement 4-14 is made that the whole or any part of the proceeds from the sale 4-15 will be used for any charitable purpose or to benefit any 4-16 charitable organization; or 4-17 (E) the use or employment of canisters, cards, 4-18 receptacles or similar devices for the collection of money or other 4-19 things of value in connection with which any appeal is made for any 4-20 charitable organization or charitable purpose. 4-21 (2) The words "solicit" and "solicitation" shall not 4-22 include a request for contributions by a charitable organization 4-23 made solely to its current and former trustees, officers, 4-24 directors, members, employees, students, advisory boards, or 4-25 volunteers. 5-1 (g) "Knowingly" means with actual awareness, but actual 5-2 awareness may be inferred where objective manifestations indicate 5-3 that a person acted with actual awareness. 5-4 (h) "Commercial coventurer" means any person who for profit 5-5 regularly and primarily is engaged in trade or commerce other than 5-6 in connection with soliciting for charitable organizations or 5-7 charitable purposes and who conducts a charitable sales promotion. 5-8 (i) "Charitable sales promotion" means any advertising or 5-9 sale conducted by a person who represents that the purchase or use 5-10 of goods or services offered by the person will benefit, in whole 5-11 or in part, any charitable organization or charitable purpose. The 5-12 provision of advertising services to a charitable organization, 5-13 either for compensation or as a donation, does not of itself 5-14 constitute a charitable sales promotion. 5-15 (j) "Fundraising counsel" means any person who for 5-16 compensation consults with a charitable organization or who plans, 5-17 manages, advises or assists with respect to the solicitation of 5-18 contributions for or on behalf of a charitable organization, but 5-19 who does not have custody and control over contributions or other 5-20 receipts from a solicitation or authority to pay expenses 5-21 associated with a solicitation and who does not solicit or employ, 5-22 procure or engage any compensated person to solicit contributions. 5-23 A bona fide officer, volunteer, or employee of a charitable 5-24 organization shall not be deemed a fundraising counsel. 5-25 Sec. 124.004. EXEMPTIONS. (a) Subject to the exception in 6-1 subsection (b), the following persons shall not be required to 6-2 register under Section 124.005: 6-3 (1) Charitable organizations that are exempt from 6-4 federal income tax under Section 501(c)(3) of the Internal Revenue 6-5 Code of 1986 and exempt from filing annual information returns with 6-6 the Internal Revenue Service under Section 6033 of the Internal 6-7 Revenue Code of 1986 and the Treasury Regulations issued pursuant 6-8 to Section 6033; 6-9 (2) institutions of higher education which have 6-10 current accreditation from a regional accrediting association; 6-11 (3) nonprofit hospitals which are required by law to 6-12 file financial reports at least annually with a state; and 6-13 (4) private foundations, as defined by Section 509(a) 6-14 of the Internal Revenue Code of 1986. 6-15 (b) A person described in subsection (a) shall register, by 6-16 filing a registration statement and filing fee in accordance with 6-17 Sec. 124.006, in any year in which it engages the services of a 6-18 commercial solicitor, at least 10 working days prior to the 6-19 effective date of the contract with the commercial solicitor. 6-20 Sec. 124.005. REGISTER TO BE MAINTAINED. (a) The attorney 6-21 general shall establish and maintain a register of charitable 6-22 organizations subject to this chapter. 6-23 (b) Except as otherwise provided herein, all documents 6-24 required to be filed with the attorney general under this chapter 6-25 shall be public information and shall be available to the public 7-1 pursuant to the Open Records Act, Chapter 552, Government Code, 7-2 except those documents which identify the donors of a charitable 7-3 organization, which information is confidential and shall not be 7-4 subject to disclosure. 7-5 Sec. 124.006. REGISTRATION. (a) The attorney general shall 7-6 maintain a registry of charitable organizations that submit to the 7-7 attorney general completed registration statements that contain the 7-8 following information: 7-9 (1) The legal name, assumed name(s), mailing address, 7-10 street address, telephone numbers and facsimile number(s) of all 7-11 offices, chapters, local units, branches and/or affiliates of the 7-12 charitable organization; 7-13 (2) the employer identification number of the 7-14 charitable organization; 7-15 (3) the name, title, addresses and telephone numbers 7-16 of the charitable organization's officers, directors and executive 7-17 director or other chief operating officer; 7-18 (4) the name of any officer, director or employee who 7-19 has been convicted of or pleaded nolo contendere to a misdemeanor 7-20 involving fraud or the theft, misappropriation, misapplication, or 7-21 misuse of property of another, or of any felony, the offense, and 7-22 the state, court and date of each conviction or plea of nolo 7-23 contendere; 7-24 (5) the date the charitable organization was 7-25 incorporated, the state of incorporation, or, if not incorporated, 8-1 type of organization and date established; the day and month on 8-2 which the organization's fiscal year ends; and whether the 8-3 organization is eligible to receive tax-deductible contributions 8-4 under Section 170 of the Internal Revenue Code of 1986; 8-5 (6) whether the organization has applied for or been 8-6 granted IRS tax exempt status, and if so, the date of the 8-7 application, the date the exemption was granted or denied, the 8-8 Internal Revenue Code section under which the application was 8-9 based, and a statement as to whether and when the tax exemption has 8-10 ever been denied, revoked or modified; 8-11 (7) the date the organization began doing business in 8-12 Texas and the name and address of the organization's registered 8-13 agent in the state of Texas; 8-14 (8) a statement of the charitable organization's 8-15 charitable purposes and, if the organization solicits 8-16 contributions, a list of the programs for which funds are 8-17 solicited; 8-18 (9) a list of all foundations, combined campaigns, 8-19 governmental entities, and persons who are exempt from federal 8-20 income taxation under Sections 501(c)(3), 501(c)(4) or 501(c)(10) 8-21 of the Internal Revenue Code of 1986, from which the charitable 8-22 organization received funds in the previous 12 months; 8-23 (10) for charitable organizations that solicit 8-24 contributions from any persons other than prior donors or persons 8-25 who have used the services of the charitable organization or the 9-1 direct beneficiaries or families of direct beneficiaries of the 9-2 charitable organization, a statement including the following 9-3 information: 9-4 (A) whether the charitable organization or any 9-5 of its directors, officers, agents, or employees has been enjoined 9-6 by a government agency or court from soliciting, has had its 9-7 registration denied or revoked, has been the subject of any court 9-8 or administrative proceeding regarding any solicitation or 9-9 registration, and/or has entered into a voluntary agreement of 9-10 compliance; 9-11 (B) a list of all states where the charitable 9-12 organization is registered or has been registered including dates 9-13 of registration, registration numbers, any other names under which 9-14 the charitable organization was or is registered and the dates and 9-15 types of solicitation conducted in each state; 9-16 (C) the names and addresses of each individual 9-17 in the charitable organization responsible for custody and control 9-18 of funds, distribution of funds, fund raising, custody of records 9-19 or authorized to sign checks and/or make withdrawals. This 9-20 information is confidential and shall not be subject to disclosure 9-21 pursuant to the Open Records Act, Chapter 552, Government Code; 9-22 (D) the names, addresses and telephone numbers 9-23 of the organization's accountants and auditors and the method of 9-24 accounting used; 9-25 (E) a statement that the charitable organization 10-1 has attempted in good faith to comply with and to the best of the 10-2 knowledge of all its officers and directors, is in compliance with 10-3 all applicable Texas county and municipal ordinances regarding 10-4 solicitation or, if none apply, a statement to that effect; 10-5 (F) for charitable organizations that engage the 10-6 services of commercial solicitors, the name and address of all 10-7 commercial solicitors so engaged in the previous twelve months, as 10-8 well as written confirmation from the commercial solicitor that it 10-9 has complied with any state and/or local registration laws; 10-10 (G) the amount paid to commercial solicitors 10-11 during the previous twelve months; 10-12 (H) the total contributions received in the 10-13 previous twelve months; and 10-14 (I) the total fund raising costs in the previous 10-15 twelve months, calculated pursuant to generally accepted accounting 10-16 principles; 10-17 (11) a copy of the charitable organization's most 10-18 recently filed IRS Form 990 and other federal tax returns, 10-19 including all supplements, amendments and attachments to these 10-20 returns and requests for extensions to file such returns, or, if 10-21 the charitable organization does not file federal tax returns, (1) 10-22 a statement as to the reason none is filed; and (2) the charitable 10-23 organization's most recent financial statements, including audited 10-24 financial statements, if any have been prepared; and 10-25 (12) a sworn statement verifying that the information 11-1 contained in the registration statement is true, correct and 11-2 complete to the best of the affiant's knowledge. 11-3 (b) All charitable organizations doing business in Texas on 11-4 the effective date of this Act shall file initial registration 11-5 statements by January 1, 1996. All charitable organizations that 11-6 begin doing business in Texas after the effective date of this Act 11-7 shall file initial registration statements at least 10 working days 11-8 before doing business in Texas. 11-9 (c) Registration expires on the 15th day of the fifth month 11-10 following the close of a charitable organization's fiscal year. 11-11 Renewal registration statements shall be filed on the same forms 11-12 required for initial registration statements and shall include the 11-13 name and employer identification number of the charitable 11-14 organization and any changes to the information previously 11-15 submitted to the attorney general. For items on which there is no 11-16 change from the previous year's registration statement, "no change" 11-17 may be indicated. 11-18 (d) A $75 filing fee shall accompany the initial 11-19 registration statement; a $75 filing fee shall accompany all 11-20 renewal registration statements. 11-21 (e) The registration statements shall be submitted on forms 11-22 prescribed or approved by the attorney general. 11-23 Sec. 124.007. NOTIFICATION OF NONCOMPLIANCE. (a) 11-24 Charitable organizations that are not in compliance with the 11-25 provisions of this chapter shall be notified of noncompliance by 12-1 the attorney general by first class mail at the organization's last 12-2 reported address. Noncompliance shall include failure to file any 12-3 documents required by this chapter or the filing of incomplete or 12-4 inaccurate documents. 12-5 (b) A charitable organization shall be deemed to be in 12-6 violation of this chapter if it fails to file complete documents 12-7 within 30 days of the date the notice required by Section 12-8 124.006(a) has been mailed, or if it knowingly files materially 12-9 inaccurate documents. 12-10 Sec. 124.008. RECORD KEEPING; AUDIT POWERS OF THE ATTORNEY 12-11 GENERAL. (a) Every charitable organization required to file 12-12 registration statements shall keep true books and records as to its 12-13 activities within the state in such form as to enable it to 12-14 accurately provide the information required by this chapter. Such 12-15 books and records shall be retained for a period of at least three 12-16 years after the end of the period to which the registration 12-17 statement relates. All books and records of a charitable 12-18 organization shall be made available for inspection and copying by 12-19 authorized personnel of the attorney general upon written request 12-20 by authorized personnel of the attorney general. 12-21 (b) A charitable organization shall make available the 12-22 information requested by authorized personnel of the attorney 12-23 general at the organization's principal place of business within 12-24 ten working days of the date of the request, or at such time and 12-25 place as may be agreed. 13-1 (c) The authority established in this section is in addition 13-2 to other statutory or common law audit or investigative authority 13-3 of the attorney general. 13-4 Sec. 124.009. USE OF FEES. All fees collected by the 13-5 attorney general under this chapter are appropriated to the 13-6 attorney general during the biennium of receipt to administer the 13-7 provisions of this chapter, to enforce this chapter, and to educate 13-8 the public about this chapter and charitable organizations and 13-9 solicitations generally. 13-10 Sec. 124.010. TOLL-FREE TELEPHONE LINE. The attorney 13-11 general shall establish and operate a toll-free telephone line. 13-12 The public may telephone the toll-free number to: 13-13 (a) obtain information concerning a charitable organization 13-14 that has registered pursuant to this chapter; or 13-15 (b) report an alleged violation of this chapter. 13-16 Sec. 124.011. REGISTRATION DOES NOT IMPLY ENDORSEMENT. 13-17 Registration pursuant to this chapter does not imply endorsement by 13-18 the state or the attorney general, and charitable organizations are 13-19 prohibited from stating or implying to the contrary. 13-20 Sec. 124.012. REMEDIES. (a) The attorney general may 13-21 institute an action for failure to fully and accurately comply with 13-22 any provision of this statute, and may obtain injunctive relief to 13-23 restrain the person from continuing the violation or violations, 13-24 cancellation or suspension of the registration, an order 13-25 restraining the person from doing business in this state while 14-1 violating this chapter, and/or civil penalties of not more than 14-2 $25,000 per violation. A person who violates an injunction issued 14-3 under this chapter is liable to the state for a civil penalty of 14-4 not less than $100,000. 14-5 (b) The remedies authorized by this chapter are not 14-6 exclusive, but are in addition to any other procedure or remedies 14-7 provided for by any other statutory or common law. 14-8 (c) In any proceeding successfully prosecuted by the 14-9 attorney general under this chapter, the court may allow the 14-10 attorney general to recover civil penalties and the reasonable 14-11 costs, expenses, and attorney's fees incurred in bringing the suit. 14-12 Sec. 124.013. APPROPRIATION OF FEES AND CIVIL PENALTIES. In 14-13 addition to moneys appropriated elsewhere, the attorney general is 14-14 hereby appropriated all fees assessed pursuant to and all recovered 14-15 expenses incurred in obtaining injunctive relief, administrative 14-16 and/or civil penalties authorized by Chapter 124, Property Code. 14-17 Recovered expenses include, but are not limited to, investigative 14-18 costs, witness fees, attorneys' fees, and deposition expenses. 14-19 Moneys hereby appropriated may be expended only for purposes of 14-20 enforcing and administering the provisions of Chapter 124, Property 14-21 Code and may not be appropriated for any other purpose. 14-22 Sec. 124.014. SERVICE ON SECRETARY OF STATE. (a) The 14-23 secretary of state is an agent for service of process or complaint 14-24 on a charitable organization which: 14-25 (1) is required by the state to designate or maintain 15-1 a resident agent but has not designated or maintained a resident 15-2 agent for service of process; 15-3 (2) has one or more resident agents for service of 15-4 process, but two unsuccessful attempts have been made on different 15-5 business days to serve each agent; or 15-6 (3) is not required to designate an agent for service 15-7 in this state. 15-8 (b) Service on the secretary of state may be made by 15-9 certified mail, return receipt requested, by the clerk of the court 15-10 in which the case is pending, by the party or representative of the 15-11 party or by any other method authorized by statute or the Texas 15-12 Rules of Civil Procedure for service on the secretary of state. 15-13 (c) If the secretary of state is served with process for a 15-14 charitable organization, he shall require a statement of the name 15-15 and last known address of the charitable organization and shall 15-16 immediately mail a copy of the process to the charitable 15-17 organization by registered mail or by certified mail, return 15-18 receipt requested. 15-19 Sec. 124.015. VENUE. In any proceeding under this chapter, 15-20 venue shall be in a court of competent jurisdiction in Travis 15-21 County, in the county in which the charitable organization has its 15-22 principal place of business, or has a fixed and established place 15-23 of business at the time the suit is brought, or in the county in 15-24 which solicitation occurred. 15-25 Sec. 124.016. RULES. The attorney general may prescribe any 16-1 rules, procedures and forms which are consistent with and necessary 16-2 for the proper administration and enforcement of this chapter. 16-3 SECTION 2. The changes in law made by this Act apply only to 16-4 a solicitation that takes place on or after the effective date of 16-5 this Act. A solicitation that takes place before the effective 16-6 date of this Act is governed by the law in effect on the date of 16-7 the solicitation, and the former law is continued for this purpose. 16-8 SECTION 3. This Act takes effect September 1, 1995. 16-9 SECTION 4. SEVERABILITY. If any section, sentence, clause, 16-10 or part of this Act shall, for any reason, be held invalid, such 16-11 invalidity shall not affect the remaining portions of the Act and 16-12 it is hereby declared to be the intention of this legislature to 16-13 have passed each section, sentence, clause, or part irrespective of 16-14 the fact that any other section, sentence, clause, or part may be 16-15 declared invalid. 16-16 SECTION 5. EMERGENCY. The importance of this legislation 16-17 and the crowded condition of the calendars in both houses create an 16-18 emergency and an imperative public necessity that the 16-19 constitutional rule requiring bills to be read on three separate 16-20 days in each house be suspended.